Dow crashes below 9000 after Asian stock markets crumble overnight

Wall Street fell almost 700 points as the spluttering performance of America's car makers and continuing concerns over the state of the banking sector dragged the Dow Jones below 9000 for the first time since 2003.

The index of blue-chip shares took a 678.91 point pounding to close at 8579.19 last night. General Motors tumbled 22pc to its lowest level since 1958 and Ford was down around 12pc as it emerged the pair could be in deep trouble despite a much vaunted government loan guarantee meant to stave off financial hardship.

US Treasury Secretary Henry Paulson's warning of more bank and corporate failures also spooked investors.

'Nobody living has been in a market environment like this,' said Robert Schaeffer, a money manager at Becker Capital in the US.

It has been a bloody week for the Dow which has lost 2,000 points in that time and is down by almost 40pc since hitting an all-time high of 14,164 exactly a year ago. The demise of the Dow underlines just how deeply ingrained the credit crunch is in America.

And the troubles of Ford and GM underline the fact that the downturn has transferred from Wall Street to Main Street USA.

On the money markets the rate at which banks lend to each other remained prohibitively high. This emphasised that attempts to break the credit squeeze both in the US and UK had failed spectacularly.

The end of the American ban on short selling of financial stocks saw investment bank Morgan Stanley come under renewed pressure. Its stock tumbled by more than a quarter at one stage in a frenzied session.

Banks also slid on the back of the unfolding devastation in Iceland, where the island's overstretched lenders are being nationalised and assets liquidated.

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The president of South Korea has already called for a summit with China and Japan, which between them have $1.8trillion in reserves to mount a defence against the global crisis.

And in Taiwan, which recently reported an annual fall in September exports, the first reverse for 18 months, Credit Suisse economist Joseph Lau admitted: 'The rate cut probably doesn't do too much, to be honest. The best thing the central bank can do now is maintain liquidity in the system.'

Joesph Yam, the chief of Hong Kong's central bank, said he hoped the rate cut would help bring down the cost of borrowing for all industries in the former colony.

Hong Kong is facing up to the prospect of recession and Kelvin Lau, an economist with Standard Chartered, said: 'The external environment feels like we're already in a recession, but Hong Kong will likely skip a technical recession.'